Shrinkflation: Less Bang for Your Health Insurance Buck

Drs Robert Glatter and Robert Pearl discuss shrinkflation and how it applies to healthcare.
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Robert D. Glatter, MD: Welcome. I'm Dr Robert Glatter, medical advisor for Medscape Emergency Medicine. Joining me today is Dr Robert Pearl - a plastic and reconstructive surgeon, faculty at Stanford Graduate School of Business, and former CEO of the Permanente Medical Group - to discuss his recent Forbes article, "How America Skimps on Healthcare," also known as shrinkflation.
Welcome, Robert. It's really a pleasure to have you join us today.
Robert M. Pearl, MD: Hi, Rob. It's a great pleasure to be here.
Shrinkflation: Exploring Its Presence in Healthcare and Corporate Industries
Glatter: The article basically deals with a concept known as shrinkflation, and I want you to define that for our audience.
Pearl: A great way to start is with an example. About a month ago, I went to the store and purchased some cereal. I wanted to have some fiber in my diet. I opened the package and it was only three quarters full. It wasn't a manufacturing error; it was intentional. What happens is that, at times of major inflation, businesses raise their prices to earn either added profit or at least maintain their profit, despite the fact that they might have some higher supply costs.
Now, at some point, the consumer says, "I just can't keep spending this much. I can't keep spending $6 for a box that used to be $4." The manufacturer can't keep raising the price, so what do they do? They keep the price because the consumer has already indicated they can do $6 but no more, and they shrink the amount of cereal, potato chips, or soda. It doesn't matter what the area is; it shrinks the amount in order to keep the business producing it both viable and profitable.
Glatter: How would that apply in healthcare, specifically, and how can you translate that in terms of the corporate industries of packaged goods?
Pearl: As we look to healthcare inflation, remember, it's inflation that's driving this entire process. With the passage of Medicare and Medicaid in the mid-1960s, as well as some other changes in healthcare coverage, you see healthcare as a percentage of gross domestic product rising - not each year, because that fluctuates, but each decade. By the time we reached 2000, it's already about 13%-14%. By 2010, it hit 17.2%. I, along with most healthcare policy experts, thought it was going to get past 20% by the time we get to 2023. Lo and behold, it's not.
I look at this and I ask, why did it change? Was it Obamacare? No, because we didn't see any improvement in clinical outcomes. In fact, what we've seen is life expectancy decline from 78 years down to 77 years. We've seen other problems occur in medicine.
What I realize is that healthcare has done the same thing that the manufacturers of cereal did, which is that it used shrinkflation. By that, I mean not very many people notice the changes. I'm happy to go into each of them in detail if you'd like me to.
High-Deductible Health Plans and the Shrinkflation Dilemma in Healthcare
Glatter: I would love that. We notice these changes. I'm sure both you and I have noticed over the decades we've practiced. High-deductible healthcare plans - you mentioned that in your article, and I think that's an important aspect of this shrinkflation. Maybe you could describe that a little more.
Pearl: Around 2010, insurers started offering high-deductible healthcare plans. Remember that commercial private insurance, for the most part, is bought by companies that provide it to their workers, and they said, "We just can't provide anymore."
You may remember that we had a recession in 2008 and 2009 in the country. Insurers said, we can keep the price that the employer pays by being able to offer these high-deductible plans, which essentially said that before your insurance kicks in, you as a patient have to pay a certain amount of money.
As that money went up from $500 to $1000 to $2000 - and now it's as high as $5000, $6000, or $7000 for some people - care became restricted because most people can't afford to pay it out of pocket. The average person doesn't have $5000, $6000, or $7000 in savings. They'd have to borrow against their house or do something else that would be pretty negative. Instead, they just skip getting their care. This is the shrinkflation that we see, and it's why shrinkflation works. It's like the cereal you get in the box.
If you don't have serious illness, and the majority of Americans don't, then you don't see that high deductible until, of course, you develop cancer, get into a car accident, or for some other reason need hospitalization. Then, all of a sudden, you have a massive bill, and as you well know, healthcare is the number-one cause of bankruptcy in the United States.
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